No Rest for a Hot Dow; Traders Eye Next Target: 15000

By Matt Jarzemsky

Associated Press

Next stop: 15000

With its prior record of 14164.53 left in the dust, the Dow Jones Industrial Average is ready to move on to its next target: 15000.

Whether stocks can reach that peak depends on the pace of economic growth, corporate earnings and the future of intervention by the Federal Reserve and other central banks, strategists say. But with the market — when viewed in relation to company earnings — still trading at a discount to previous peaks, some money managers remain bullish.

“The market could go higher on earnings, and I think we may. If monetary pressure stays positive, that could drive us higher. And if nothing bad happens in Europe, that could drive us up,” said John Manley, chief equity strategist at Wells Fargo 's funds unit, which manages about $200 billion in assets. “If you start from that notion that everything’s going to fall apart, the gradual erosion of that thinking can drive the market higher.”

While many of recent years’ problems remain unsolved — such as a slow recovery in the U.S. economy, and debt issues in the euro zone — individual investors finally seem to be “coming out of their shells,” said Art Steinmetz, chief investment officer at OppenheimerFunds, which oversees $205 billion in assets.

“People are nervous about the ability of the federal government to get its house in order, budget-wise,” he said. “‘Uncertainty’ is a word that drops off peoples’ lips frequently. Having said that, flows into our funds in January and February were as strong as they’ve ever been.”

Steinmetz said stocks’ reasonable valuations make him optimistic.

The Dow’s price-to-earnings ratio stands at 15.62, according to the WSJ Market Data Group. That is below a level of 16.99 seen during blue chips’ 2007 high and 25 during 2000′s peak. Given its components’ earnings now, the Dow would have to climb to 15542 to hit its 2007 valuation — and 22869 to hit the 2000 level.

To be sure, a quick climb to 15000 would represent one of the bigger rallies in recent history for the Dow. That price would put the benchmark 14% above where it ended last year. The benchmark hasn’t gained that much in any calendar year since 2009, when stocks were rebounding from the depths of the financial crisis.

Steven Rees, head of U.S. equity strategy at J.P. Morgan Private Bank, said he and his team are urging clients to focus on the market’s fundamental characteristics, rather than getting caught up in price levels.

“The underlying drivers of equities are corporate profit growth and return of cash to shareholders,” said Rees, whose organization oversees about $877 billion. “Recent trends in earnings have come in better than expected. Dividends are accelerating. Share repurchases are starting to pick up, and [mergers-and-acquisitions] activity is also picking up, as well. You’re starting to see American companies be a little more optimistic about their outlook.”

While the Dow remains about 5% from 15000, another red-letter day for the market is within shorter reach. The S&P 500, regarded by many professional traders and investors as the true benchmark for U.S. equities, is about 1.5% off its all-time high.

The S&P 500 is up 8.1% on the year, lagging behind the blue chips’ 9.1% advance. That is partly because technology shares in the S&P 500, the largest of the index’s 10 sectors by weight, have gained a middling 3.5% Apple Inc., a hefty component of the index, is down 20% in 2013.

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Comments (2 of 2)

Rockets in space don't rest. Up nearly 8000 points in just 4 years. 8000 points. 8000 points. There is no gravity in outer space. A body in motion, stays in motion...especially in outer space. You know how it goes. This became Obama's Wall Street. Down was simply not permitted. You know it. We know it. Everybody knows it. So just say it like it is. 4 more years, guaranteed.

4:34 pm March 6, 2013

Wait, What? wrote :

you should probably let your readers know that volume for the cash DJIA30 during the last 3 days was equal to the 3 days after Christmas 2012. that tells you how much conviction there is behind the 'all-time highs'

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